Edited version of private advice

Authorisation Number: 1052097327812

Date of advice: 20 March 2023

Ruling

Subject: Superannuation member benefits

Question

Is the superannuation lump sum payment of $XXX received by the Estate of XXXX a superannuation death benefit, with regard to any pay as you go (PAYG) withholding obligations in accordance with section 12-85 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

Yes.

This ruling applies for the following period:

30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Deceased was a member of the Fund.

The Deceased was aged over 65.

The Deceased passed away on the same day (but after) a request was lodged by the Deceased's financial advisor to withdraw the Deceased's benefits from the Fund.

The following day, the financial advisor was informed that the Deceased had passed away.

Following the Deceased's death, the Fund advised the Financial Advisor of the following:

•         As the signature on the withdrawal form was an electronic signature and not a "wet" signature, the Fund could not process the withdrawal request as a member lump sum payment; and

•         The Fund would now require documentation to be provided by the executor of the Deceased's Estate to enable funds to be paid out and they would record this as a death benefit payment.

The Fund paid the balance of the Deceased member's superannuation pension account as a death benefit payment to the Deceased Estate.

Relevant legislative provisions

Section 302-10 of the Income Tax Assessment Act 1997

Section 307-5 of the Income Tax Assessment Act 1997

Section 307-15 of theIncome Tax Assessment Act 1997

Subsection 995-1(1) of the Income Tax Assessment Act 1997

Section 12-85 of Schedule 1 to the Taxation Administration Act 1953

Reasons for decision

Summary

The superannuation lump sum payment is not a superannuation member benefit as it was made after the member's death.

The payment made by the Fund to the estate of the Deceased is a superannuation death benefit. The Fund's trustee was aware of the Deceased's death at the time of payment and determined the payment was a superannuation death benefit.

Detailed reasoning

Subsection 995-1(1) of the ITAA 1997 defines 'superannuation benefit' as having the meaning given by section 307-5.

Subsection 307-5(1) of the ITAA 1997 defines the term superannuation benefit as being a payment described in the table:

Table 1: Types of superannuation benefits

Subsection 307-5(2) of the ITAA 1997 further clarifies that a payment described in column 2 of the table is a superannuation member benefit. Under subsection 307-5(4) a superannuation death benefit is a payment described in column 3 of the table.

Section 307-15 of the ITAA 1997 applies for the purposes of determining whether a payment is made to a person, or received by a person, and states:

A payment is treated as being made to you, or received by you, if it is made:

a)        for your benefit; or

b)        to another person or to an entity at your direction or request.

Death benefit or member benefit

An amount that a member requested to be paid from their superannuation fund before their death, but was paid after their death, may be classified as a member benefit instead of a death benefit depending on the facts and circumstances of the payment.

A trustee of a regulated superannuation fund can only pay superannuation benefits according to the fund's governing rules, including the fund's trust deed and relevant legislation. These governing rules set out when benefits can be paid and who they can be paid to, including after a member's death. A superannuation fund's governing rules must be read carefully to determine a member's benefit entitlements in the event of death.

The assessment of whether the amount that the member requested to be paid is a member benefit or a death benefit is based on the facts known at the time of the payment, including:

a.      The terms of the member's request;

b.      The terms of the trust deed and any other governing rules;

c.      The fund trustee's knowledge at the time that the payment is made (including whether they are aware that the member has died);

d.      The entity that the payment is being paid to;

e.      The circumstances and timing of the payment; and

f.       Whether the payment is made because of and consistent with the member's request.

In this instance, the Deceased requested that a lump sum withdrawal from their Fund. However, the Deceased before any payment was made by the Fund.

Additionally, the Fund was unable to process the withdrawal request as the Deceased had not physically signed the withdrawal request as required by the Fund. Instead, knowing that the Deceased had died, the Fund made the lump sum payment to the Trustee of the Deceased Estate. Therefore, the lump sum payment is a superannuation death benefit.

Under section 302-10 of the ITAA 1997, the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

Subsequently, it is the responsibility of the legal personal representative to withhold any superannuation death benefits tax from the deceased estate before it is distributed. Where death benefits are paid by the estate to a 'death benefits dependant', no tax will be payable. If, however, any part of the superannuation death benefit is payable under the will or on intestacy to a beneficiary who does not fall within that definition, the legal personal representative will be responsible for withholding tax from the superannuation death benefit in accordance with section 12-85 of Schedule 1 to the TAA.